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Research: Consumer
La Doria has reported a good set of FY19 results, with like-for-like growth of 3.8% and EBITDA margins up 10bp. The outlook for 2020 is more subdued: increased costs in the red line will cause EBITDA margins to suffer although they are still expected to be up, while the Sauces business is now expected to see EBITDA margins decline due to increased raw material costs. As expected, management has published its new rolling three-year business plan, which is strategically in line with the prior plan, which provided for €138m of investment. Although it is still early days, La Doria is complying with all government directives regarding the COVID-19 outbreak. So far, there has not been any adverse impact, and demand has in fact increased both domestically and internationally. Our fair value reduces to €13/share from €14 previously as we cut our EBITDA forecasts to reflect the updated guidance.
Written by
La Doria |
Tough times ahead |
FY19 results |
Food & beverages |
23 March 2020 |
Share price performance
Business description
Next events
Analysts
La Doria is a research client of Edison Investment Research Limited |
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La Doria has reported a good set of FY19 results, with like-for-like growth of 3.8% and EBITDA margins up 10bp. The outlook for 2020 is more subdued: increased costs in the red line will cause EBITDA margins to suffer although they are still expected to be up, while the Sauces business is now expected to see EBITDA margins decline due to increased raw material costs. As expected, management has published its new rolling three-year business plan, which is strategically in line with the prior plan, which provided for €138m of investment. Although it is still early days, La Doria is complying with all government directives regarding the COVID-19 outbreak. So far, there has not been any adverse impact, and demand has in fact increased both domestically and internationally. Our fair value reduces to €13/share from €14 previously as we cut our EBITDA forecasts to reflect the updated guidance.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
687.9 |
33.1 |
88.2 |
18.0 |
9.3 |
2.2 |
12/19 |
717.7 |
32.7 |
64.0 |
18.0 |
12.8 |
2.2 |
12/20e |
732.0 |
36.7 |
91.1 |
18.0 |
9.0 |
2.2 |
12/21e |
754.0 |
40.9 |
101.5 |
19.0 |
8.1 |
2.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Good FY19 performance, more challenging FY20
FY19 results were strong, with impressive international growth of 6%, while domestic markets (18% of sales) were down 3%. The competitive environment remains challenging as retailers continue to exert downward pressure on pricing. Raw material costs are increasing, as tomato costs are up following the 2019 seasonal tomato campaign, semi-finished tomato product and other ingredient costs are also up.
No negative effects from Coronavirus impact so far
It is still too early to assess the full impact of the Covid-19 pandemic, but so far La Doria has witnessed a surge in demand for many of its products, which are everyday staples with a long shelf life. The company is complying with government orders and has introduced policies to reduce the contagion risk among its employees, but its factories are continuing to operate.
Valuation: Fair value of €13.00/share
Our DCF model indicates a fair value of €13.00 per share (previously €14.00), or c 60% upside from the current share price. La Doria trades on a P/E of 9.0x FY20e, a c 30% discount to its private-label peer group. On EV/EBITDA it trades at 6.3x FY20e, a c 15% discount. We believe La Doria remains an attractive proposition, given the strength of its market position in the private-label segment. Management remains committed to improving the stability of the business, while continuing to invest to maintain its competitive edge.
FY19 results review and outlook
Consolidated revenues were up 4.3% to €717.7m year-on-year, or +3.8% at constant currency. EBITDA was up 6% to €56m, with the EBITDA margin up 10bp to 7.8%. EBIT was down 1% to €34.6m, with the margin down 30bp to 4.8% due to higher depreciation and amortisation, and higher provisions. Net debt was €148.8m vs €112.3m at the end of FY18 and €135.0m at the end of 9M19. As a reminder, the increase in net debt was due to the planned investment – detailed in the industrial plan – to upgrade La Doria’s business capabilities in order to remain cost-competitive. 2019 witnessed the installation of a new line for the production of easy-open lids for cans, a new Sauces line, and also significant investment in the subsidiary LDH, as construction began on a highly-automated logistics platform in the UK.
We illustrate how the FY19 results fared vs our expectations in Exhibit 1 below.
Exhibit 1: Forecasts vs actual FY19 results (€m)
Forecast |
Actual |
% change |
|
Revenue |
690.0 |
717.7 |
4.0% |
EBITDA |
53.0 |
56.0 |
5.7% |
EBIT |
37.0 |
34.6 |
-6.6% |
PBT (pre-exceptional) |
35.0 |
32.7 |
-6.4% |
Net profit |
25.5 |
19.9 |
-22.3% |
Net debt |
147.9 |
148.8 |
0.6% |
EBITDA margin |
7.7% |
7.8% |
0.1% |
EBIT margin |
5.4% |
4.8% |
-0.5% |
Source: Edison Investment Research, La Doria data
The pulses and vegetables line performed strongly, with organic sales up 8.8%. The ready-made sauces and fruit lines also showed good growth (+4.8% and 4.1%, respectively), while ‘other lines’ (ie the trading business that goes through UK subsidiary LDH) was up 3.2%. The tomato-based line was flat, due to weakness in Italy.
Coronavirus update
The Covid-19 emergency has led to a spike in demand over the past few weeks, both in Italy and in other markets. The company is following all government directives and has introduced specific measures to reduce the contagion risk for its employees. In addition, anybody who can work from home is being asked to do so. The global spread of Covid-19 is affecting economic activities globally, and La Doria’s management correctly states that the effects and evolution of this crisis are unforeseeable. That said, in the shorter term La Doria’s results should be buoyed by the increased demand caused by consumers stockpiling ambient and long shelf-life food staples and the increased consumption derived from more consumers eating at home rather than in horeca establishments.
Forecasts
As usual with its full year results, La Doria has published its updated rolling three-year business plan. Two years ago, management initiated an investment plan to strengthen the business in the long term. The strategy centred on driving revenues by increasing capacity in the more value-added lines, in order to improve the mix, increase EBITDA margins and streamline production, thus reducing costs. Management continues with its industrial plan, which included €138m of investment in the business, though it has trimmed its expectations in the shorter term in light of the tough competitive environment and higher production costs. In particular, the 2019 tomato campaign resulted in higher tomato and semi-finished tomato procurement costs. These will adversely affect profitability in FY20, together with meat costs that are also higher (for more detail on the outcome of the 2019 seasonal tomato campaign, see here). Looking ahead to FY21, management expects the competitive retail environment to remain tough, but margins are still expected to expand. We illustrate the change in targets in Exhibit 2 below.
Exhibit 2: Old vs new company financial targets
€m |
2020e |
2021e |
||||
Old |
New |
% chg |
Old |
New |
% chg |
|
Revenue |
721 |
732 |
1.5% |
742 |
753 |
1.5% |
EBITDA |
64 |
55 |
(14.1%) |
70 |
63 |
(10.0%) |
EBIT |
45 |
37 |
(17.8%) |
48 |
42 |
(12.5%) |
PBT |
43 |
36 |
(16.3%) |
47 |
40 |
(14.9%) |
Net Profit |
32 |
28 |
(12.5%) |
35 |
31 |
(11.4%) |
Operating cash flow |
45 |
25 |
(44.4%) |
51 |
54 |
5.9% |
Capex |
15 |
20 |
33.3% |
8 |
12 |
50.0% |
FCF |
30 |
5 |
(83.3%) |
43 |
42 |
(2.3%) |
Dividend payout (on parent company profit) |
30% |
30% |
30% |
30% |
||
Net cash flow |
18 |
(8) |
(144.4%) |
29 |
27 |
(6.9%) |
Net debt |
131 |
157 |
19.8% |
101 |
129 |
27.7% |
Debt/EBITDA (x) |
2.0 |
2.9 |
45.0% |
1.5 |
2.0 |
33.3% |
Gearing (x) |
0.5 |
0.6 |
0.3 |
0.4 |
||
ROI |
11.2% |
8.8% |
(240) |
12.2% |
10.1% |
(210) |
ROE |
11.8% |
10.5% |
(130) |
11.8% |
10.7% |
(110) |
Source: La Doria data
We have adjusted our FY20–22 forecasts to reflect the updated guidance and the tough competitive environment. Our revenue forecasts are up 2%, while EBITDA reduces by c 5% due to the additional pressure of increasing costs. Our tax rate reduces from 28% to 23% in line with company guidance. We note FY20 operating cash flow is lower than other years due to a planned increase in working capital, which should unwind over the following two years. We have also included FY23 forecasts (see Exhibit 6).
Exhibit 3: Old vs new forecasts
2020e |
2021e |
2022e |
|||||||
€m |
Old |
New |
% chg |
Old |
New |
% chg |
Old |
New |
% chg |
Revenue |
717.6 |
732.0 |
2.0% |
739.1 |
754.0 |
2.0% |
761.3 |
776.6 |
2.0% |
EBITDA |
58.7 |
55.7 |
-5.1% |
64.9 |
61.9 |
-4.7% |
67.6 |
64.5 |
-4.6% |
EBIT |
41.7 |
38.7 |
-7.2% |
45.9 |
42.9 |
-6.6% |
47.6 |
44.5 |
-6.5% |
PBT |
39.7 |
36.7 |
-7.6% |
43.9 |
40.9 |
-6.9% |
45.6 |
42.5 |
-6.8% |
Net Profit |
29.0 |
28.2 |
-2.5% |
32.0 |
31.5 |
-1.8% |
33.3 |
32.5 |
-2.3% |
Net Debt |
128.5 |
153.1 |
19.2% |
97.4 |
122.6 |
25.9% |
69.5 |
90.5 |
30.2% |
Source: Edison Investment Research
Valuation
We illustrate La Doria’s valuation versus its peers in Error! Reference source not found. below. We have expanded our peer group to include a wider group of Italian-listed food companies. On 2020 estimates, La Doria currently trades at a c 30% discount on P/E, which we believe is unwarranted given the company’s balance sheet is conservatively managed. On EV/EBITDA, La Doria trades at a c 15% discount.
Exhibit 4: Benchmark valuation of La Doria relative to peers
Market cap |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
||||
(m) |
2020e |
2021e |
2020e |
2021e |
2020e |
2021e |
|
Greencore |
£597.6 |
9.4 |
7.3 |
6.3 |
5.8 |
0.6 |
0.6 |
Ebro Foods |
£2,770.1 |
19.6 |
16.3 |
10.0 |
9.1 |
1.2 |
1.1 |
Bonduelle |
€ 641.0 |
8.8 |
9.2 |
6.2 |
6.4 |
0.5 |
0.5 |
Valsoia |
€ 89.5 |
N/A |
13.8 |
N/A |
5.9 |
N/A |
0.9 |
Massimo Zanetti Beverage Group |
€ 136.8 |
N/A |
7.1 |
N/A |
5.2 |
4.5 |
4.6 |
Centrale del Latte d'Italia |
€ 34.3 |
N/A |
N/A |
N/A |
16.5 |
N/A |
0.0 |
Newlat |
€ 218.5 |
N/A |
24.9 |
N/A |
7.0 |
N/A |
0.0 |
Peer group average* |
12.6 |
13.1 |
7.5 |
8.0 |
1.7 |
1.1 |
|
La Doria |
€ 253.9 |
9.0 |
8.1 |
6.3 |
6.1 |
2.3 |
2.4 |
Premium/(discount) to peer group |
(28.6%) |
(38.4%) |
(15.4%) |
(24.0%) |
36.3% |
123.6% |
|
Source: Edison Investment Research estimates, Refinitiv. Note: Prices at 20 March 2020. *FY20e average excludes Centrale del Latte d'Italia.
Our primary valuation methodology is DCF analysis and we calculate a fair value of €13.00/share (previously €14.00) or c 60% upside from the current level. This is based on our assumptions of a 1.0% terminal growth rate and a 6.5% terminal EBIT margin. We have cut the latter assumption from 7.0% in light of the structurally tough competitive environment. Our WACC of 6.4% is predicated on an equity risk premium of 4.5%, borrowing spread of 6% and beta of 0.8.
We have rolled forward our DCF to commence in 2020, and our model still points to significant potential upside. Below, we show a sensitivity analysis to our assumptions and note that the current share price is discounting a terminal EBIT margin of 5.5% (which compares with La Doria’s FY19 EBITDA margin of 7.8% and EBIT margin of 4.8%) and a terminal growth rate of c -2.3%.
Exhibit 5: DCF sensitivity to terminal growth rate and EBIT margin (€/share)
EBIT margin |
|||||||
5.5% |
6.0% |
6.5% |
7.0% |
7.5% |
8.0% |
||
Terminal growth |
-2.5% |
6.8 |
7.5 |
8.1 |
8.7 |
9.3 |
9.9 |
-1.5% |
7.5 |
8.2 |
8.8 |
9.5 |
10.2 |
10.9 |
|
-0.5% |
8.2 |
9.0 |
9.9 |
10.7 |
11.5 |
12.3 |
|
0.5% |
9.3 |
10.3 |
11.2 |
12.1 |
13.1 |
14.0 |
|
1.5% |
10.8 |
11.9 |
13.1 |
14.2 |
15.4 |
16.6 |
|
2.5% |
13.0 |
14.5 |
16.0 |
17.4 |
18.9 |
20.4 |
|
3.5% |
16.8 |
18.8 |
20.8 |
22.8 |
24.8 |
26.8 |
|
Source: Edison Investment Research estimates
Exhibit 6: Financial summary
€m |
2018 |
2019 |
2020e |
2021e |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
687.9 |
717.7 |
732.0 |
754.0 |
776.6 |
799.9 |
Cost of Sales |
(581.7) |
(604.2) |
(618.5) |
(633.2) |
(651.5) |
(670.2) |
||
Gross Profit |
106.2 |
113.5 |
113.5 |
120.7 |
125.1 |
129.7 |
||
EBITDA |
|
|
52.8 |
56.0 |
55.7 |
61.9 |
64.5 |
67.2 |
Operating Profit (before amort. and except.) |
34.8 |
34.6 |
38.7 |
42.9 |
38.7 |
42.9 |
||
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
FX Gain/(loss) |
3.2 |
(5.0) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
37.9 |
29.5 |
38.7 |
42.9 |
44.5 |
47.2 |
||
Net Interest |
(1.7) |
(1.8) |
(2.0) |
(2.0) |
(2.0) |
(2.0) |
||
Profit Before Tax (norm) |
|
|
33.1 |
32.7 |
36.7 |
40.9 |
42.5 |
45.2 |
Profit Before Tax (FRS 3) |
|
|
36.3 |
27.7 |
36.7 |
40.9 |
42.5 |
45.2 |
Tax |
(8.9) |
(7.9) |
(8.4) |
(9.4) |
(10.0) |
(12.2) |
||
Profit After Tax (norm) |
27.3 |
19.9 |
28.2 |
31.5 |
32.5 |
33.0 |
||
Profit After Tax (FRS 3) |
27.3 |
19.9 |
28.2 |
31.5 |
32.5 |
33.0 |
||
Average Number of Shares Outstanding (m) |
31.0 |
31.0 |
31.0 |
31.0 |
31.0 |
31.0 |
||
EPS - normalised fully diluted (c) |
|
|
88.2 |
64.0 |
91.1 |
101.5 |
104.9 |
106.5 |
EPS - (IFRS) (c) |
|
|
88.2 |
64.0 |
91.1 |
101.5 |
104.9 |
106.5 |
Dividend per share (c) |
18.0 |
18.0 |
18.0 |
19.0 |
20.0 |
20.0 |
||
Gross Margin (%) |
15.4 |
15.8 |
15.5 |
16.0 |
16.1 |
16.2 |
||
EBITDA Margin (%) |
7.7 |
7.8 |
7.6 |
8.2 |
8.3 |
8.4 |
||
Operating Margin (before GW and except.) (%) |
5.1 |
4.8 |
5.3 |
5.3 |
5.7 |
5.7 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
203.5 |
246.0 |
268.4 |
266.8 |
265.7 |
265.2 |
Intangible Assets |
5.5 |
5.1 |
4.4 |
3.7 |
3.0 |
2.3 |
||
Tangible Assets |
175.9 |
221.6 |
225.3 |
219.0 |
211.7 |
204.4 |
||
Investments |
22.1 |
19.3 |
38.6 |
44.1 |
50.9 |
58.5 |
||
Current Assets |
|
|
419.4 |
384.4 |
385.0 |
423.3 |
456.0 |
491.2 |
Stocks |
204.4 |
219.1 |
223.9 |
225.4 |
224.1 |
224.5 |
||
Debtors |
110.2 |
109.8 |
109.8 |
116.1 |
118.0 |
120.0 |
||
Cash |
86.8 |
42.0 |
37.8 |
68.3 |
100.4 |
133.1 |
||
Other |
18.0 |
13.5 |
13.5 |
13.5 |
13.5 |
13.5 |
||
Current Liabilities |
|
|
(242.3) |
(246.6) |
(231.7) |
(242.6) |
(246.2) |
(251.9) |
Creditors |
(148.4) |
(153.9) |
(139.1) |
(150.0) |
(153.5) |
(159.2) |
||
Short term borrowings |
(93.9) |
(92.7) |
(92.7) |
(92.7) |
(92.7) |
(92.7) |
||
Long Term Liabilities |
|
|
(139.3) |
(130.3) |
(130.3) |
(130.3) |
(130.3) |
(130.3) |
Long term borrowings |
(105.2) |
(98.2) |
(98.2) |
(98.2) |
(98.2) |
(98.2) |
||
Other long term liabilities |
(34.1) |
(32.2) |
(32.2) |
(32.2) |
(32.2) |
(32.2) |
||
Net Assets |
|
|
241.4 |
253.6 |
291.3 |
317.2 |
345.2 |
374.2 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
48.2 |
38.7 |
27.6 |
55.5 |
57.5 |
58.3 |
Net Interest |
(1.7) |
(1.8) |
(2.0) |
(2.0) |
(2.0) |
(2.0) |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Capex |
(46.5) |
(59.4) |
(20.0) |
(12.0) |
(12.0) |
(12.0) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Financing |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Dividends |
(9.6) |
(6.9) |
(9.9) |
(11.0) |
(11.4) |
(11.6) |
||
Other |
(4.6) |
(7.0) |
(0.0) |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(14.1) |
(36.5) |
(4.3) |
30.5 |
32.1 |
32.8 |
||
Opening net debt/(cash) |
|
|
98.2 |
112.3 |
148.8 |
153.1 |
122.6 |
90.5 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.0) |
0.0 |
(0.0) |
(0.0) |
(0.0) |
0.0 |
||
Closing net debt/(cash) |
|
|
112.3 |
148.8 |
153.1 |
122.6 |
90.5 |
57.7 |
Source: Edison Investment Research, company data
|
|
Research: Industrials
Faced with an unprecedented set of global circumstances arising from the coronavirus pandemic, management has taken pre-emptive action with respect to potential supply chain issues. Of course, demand effects are more difficult to predict. The good news is that Stefan Pierer, the CEO, can apply his experience from managing the financial crisis, when the group saw volumes fall by around 25–30%. Any forward-looking estimates need monitoring, but we are cutting our volume expectation across the group by 15%, with a drop-through impact on EBITDA of €45m.